First National Trustco (UK) Ltd & Anor v McQuitty & Ors

Commercial deeds are construed objectively by balancing the language used with the documentary, factual and commercial context. Apparently clear wording may be displaced where the wider context shows that it does not reflect the parties’ objectively ascertained intention or produces genuine commercial absurdity.

An indemnity protecting a trustee against liabilities arising from its duties or office ordinarily concerns the trustee’s own liabilities. Without clear wording, it does not require the trustee to be put in funds for tax owed by a separate owning company or create a free-standing indemnity for that company’s debts. An untidy arrangement or the possibility that members choose not to fund such debts is insufficient to justify that construction.

First National Trustco (UK) Ltd, the trustee of a timeshare scheme, and Bahia Blanca Club B Ltd, the company holding legal title to the apartments, appealed against the dismissal of their claim for a declaration under clause 14 of a Deed of Trust.

The appellants sought to recover approximately €2.7 million in Spanish taxes imposed on BBCB. They argued that clause 14 required the Founder Member and the Club to indemnify FNTC, or put it in funds, so that BBCB’s tax liability could be discharged. Joanna Smith QC, sitting as a Deputy High Court Judge, rejected that construction in 2019 EWHC 1187 (Ch). The central issue was the proper construction and commercial effect of clause 14.

Appeal dismissed. Lord Justice Peter Jackson delivered the principal judgment. Lady Justice Asplin agreed with his reasons, and Lord Justice Henderson agreed with both judgments.

1. Commercial contracts and deeds of trust are construed objectively. The court identifies the meaning of the language chosen in its documentary, factual and commercial context. It must balance the indications given by the words and by the wider context. The court may depart from apparently clear wording where it does not reflect the objectively ascertained intention of the parties or would produce commercial absurdity. This approach was consistent with Marley v Rawlings [2014] UKSC 2, Wood v Capita Insurance Services Limited [2017] AC 1173 and the observations in LB Re Financing No 3 Ltd v Excalibur Funding No 1 Plc [2011] EWHC 2111 (Ch).
2. Clause 14 was a conventional indemnity for the protection of FNTC as trustee. Its references to liabilities connected with trust property or the office of trustee referred to liabilities incurred by FNTC, not to BBCB’s separate liability for Spanish taxes. The use of the expressions indemnify and keep indemnified did not justify treating the clause as an obligation to put FNTC in funds.
3. The appellants’ construction would create a new, free-standing indemnity for the owning company. The detailed documents contained no clear mechanism identifying when the members’ obligation would arise, what they would have to pay, or how FNTC would act. Clause 12 of the Constitution and the Management Agreement did not produce that result. They allowed payments made in the interests of members to be collected through the Club’s management arrangements, subject to the Committee’s discretion.
4. The timeshare structure was not commercially absurd merely because members could choose not to fund taxes imposed on BBCB. The Resort had continued to operate, and clause 19 of the Deed of Trust provided a mechanism for proposed modifications. The case was materially different from Re Sigma Finance Corporation [2010] 1 All ER 571, where literal construction conflicted with the wider scheme of the agreement.
5. The first-instance judge’s imperfect formulations concerning clear wording and commercial sense did not amount to material misdirection. She had considered the wider context and reached the correct construction.

• Court of Appeal (Civil Division) — The appeal was dismissed. The court upheld the construction of clause 14 adopted below.
• High Court, Business and Property Courts of England and Wales, Business List (Chancery Division) — Joanna Smith QC, sitting as Deputy Judge of the High Court, dismissed the claim for a declaration concerning the Spanish taxes: 2019 EWHC 1187 (Ch).